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Small Hydro Power in India – Quick Guide to Classification, Potential and Financing

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Small Hydro Power in India

Classification of Small Hydro in India

Small Hydro Power projects in the country are generally categorized as those having small gestation periods and requiring lesser investment unlike other energy projects, thereby emerging as an attractive option for investors.

Small Hydro Power projects generally serve a small community or industrial plant. A capacity of 10 MW maximum is generally accepted as the capacity of a small hydro plant. However many hydroelectric projects are of huge size also. Small hydro can be further subdivided into mini hydro and micro hydro. A Mini Hydro Power plant is generally less than 1,000 kW. A Micro Hydro Power plant is less than 100 kW. (source: Wikipedia)

Potential of Small Hydro in India

Power generated through SHP is expected to be around 3,375 MW by the end of the XI FYP period and further increase to around 6,000-7,000 MW by the end of the XIII Plan. The capital outlay for SHP during the XI Plan period is to the tune of INR 7 billion.

However, this quantum of growth in the sector will certainly depend on a number of key aspects, such as availability of hydrological data and pre-investment study reports of newly identified sites; single window clearance facility; consistent government policies and incentives; availability of superior technology at competitive costs, etc. In spite of several private players venturing into the sector, the public sector is likely to represent a dominant share in SHP projects in the foreseeable future.

In addition, issues related to land acquisition, resettlement and rehabilitation of people is expected to receive highest priority while compensation packages will be designed in consultation with the affected people at the project investigation stage. This will not only help in speedier completion of projects but also promote equity.

Few trade-offs will need to be carefully studied for strategic development of SHP in the country.

They are as follows:

  • Detailed investigation vis-à-vis adequate investigation
  • Conventional designs vis-à-vis innovative designs
  • Standardization vis-à-vis Optimization
  • Efficiency vis-à-vis effectiveness
  • Commercialization desirability vis-à-vis socio-economic objectives.

Having been rediscovered as a potent source of renewable energy for sustainable development, SHP is passing through a phase of prospective development. It presents a great opportunity in areas like captive power generation as well as grid connected power. India’s business entities and policy makers are in the process of fine-tuning their initiatives and strategies. Promotion of indigenous low-cost technologies and cost-effective simplifications, combined with a responsive policy for the sector, is also on the agenda.

Sources of Investment in the Sector

Clean energy investment worldwide reached INR 8,100 billion ($162 billion) in 2009 – down from INR 8,650 billion ($173 billion) in 2008 – amid weak economic conditions across the globe. However, the investment in 2009 was still the second highest annual figure ever and nearly four times the total investment in 2004 ($46 billion).

India has always been seen as an attractive destination for renewable energy investment. According to a recent publication by the United Nations Environment Program’s Sustainable Energy Finance Initiative (SEFI) and Bloomberg New Energy Finance, total financial investment in clean energy in India was at INR 135 billion ($2.7 billion) in 2009, ranking it eighth in the world.

With an increasingly favorable regulatory and policy environment and a growing number of entrepreneurs and project developers, India has been ranked by E&Y as the fourth most attractive country for renewable energy investment in the world, only behind the United States, China and Germany.

Asset finance (renewable energy finance projects) and the public market continue to be the foremost forms of renewable energy financing in India. Venture capital and private equity transactions are still in their nascent stages in India due to the risks associated with renewable energy technologies. Although the domestic commercial banks’ lending to renewable projects remains limited, the trend is fast changing with more and more favorable government policies and growing awareness.

Table : New Investment in India for SHP Sector,  (Figures in $ billions)

Asset class

Investment Amount

Asset Finance


Public markets






Source: Bloomberg New Energy Finance

The majority of renewable energy financing in India over the past 5 years has been in asset financing through internal company balance sheets, debt finance and equity finance. The small hydro sector received a total new investment of $0.2 billion, the third largest funding followed by wind and biomass sectors.

Read more about Advantages & Disadvantages of Hydroelectric Energy.


Rishi Srivastava

Rishi is a student of MBA in Power Management from Centre of Advance Management in Power Studies ,NPTI. He has over 3 years of experience in IT-consulting domain. His areas of interest include Renewable Energy, CDM, Demand- side management and rural electrification through off-grid/micro-grid.

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